The Zip Co Ltd (ASX: Z1P) share price and Sezzle Inc (ASX: SZL) share price are on watch after confirmation of potential takeover talks.
Both Zip and Sezzle are both buy now, pay later (BNPL) players. Sezzle operates predominately in the US, while Zip is largely in Australia though it does have a growing presence in the US and other countries.
Zip confirms Sezzle takeover interest
In a statement to the ASX, Zip confirmed that it is in discussions with Sezzle about a potential acquisition.
Zip said that it’s always interested in pursuing options that are in the best interests of shareholders.
The board said it would always work towards ensuring any potential transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities.
Zip’s leadership assured investors that it would only pursue ‘transformational transactions’ that “help accelerate the delivery of Zip’s broader strategic objectives such as enhanced scale in core markets, improved customer and merchant propositions and a faster path to profitability through significant synergy opportunities.
How close is a takeover?
Zip disclosed that the discussions with Sezzle are preliminary in nature and there is no certainty that the discussions will result in a transaction of any kind.
What does Sezzle think?
In a shorter announcement, Sezzle also confirmed preliminary talks are happening, but no definitive agreement has been reached between the parties. It also said there was no certainty that a transaction would happen.
What to make of this deal for the Zip share price
I think that, depending on the price and how the deal is structured, it would be a solid move by Zip.
It has been a rough time for Sezzle – over the last six months the Sezzle share price has sunk 72%. But the Zip share price has also dropped around 50%. It will be interesting to see if the offer is predominately cash or Zip shares.
If the deal were to go ahead, it would add a lot of useful payment volume to Zip. Would that make it stronger? It would at least take out one of the competitors and increase Zip’s market position. The BNPL sector is still in land-grab mode at the moment.
I’m not sure how profitable Zip can be in the future. Interest rates are rising – which should increase costs and margins for Zip – and regulators are now talking about allowing surcharges. However, it does continue to grow quickly.
If you’ve been thinking about investing in BNPL, then prices are clearly low now. However, for my own portfolio, I’m investing in other ASX growth shares.
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